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Rates Volatility Threatens Credit Fund Flows, BofA Securities Warns
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News18•27-09-2026, 18:15
Rates Volatility Threatens Credit Fund Flows, BofA Securities Warns
- •Continued interest rate uncertainty and elevated rates volatility are making investors cautious about riskier assets, impacting credit fund flows.
- •BofA Securities notes that higher rates volatility typically weakens flows into credit funds as investors prefer safer assets like government debt.
- •The SMOVEU3M index, measuring interest rate volatility, is currently around 90 points, indicating an unfavorable backdrop for credit funds.
- •Government bond, money market, and high-yield funds experienced outflows, while high-grade funds saw a return to inflows, though BofA is skeptical of its persistence.
- •Global emerging market debt funds continue to attract significant inflows, extending their streak to eight weeks and attracting USD 4.74 billion in the latest week.
Key Questions Answered
Continued uncertainty and elevated rates volatility tend to weaken capital flows into credit funds because investors become more cautious and prefer safer assets like government debt rather than riskier alternatives.
The SMOVEU3M index is the ICE BofAML Swap MOVE 3-Month Index, which measures interest rate volatility by tracking the market-implied volatility of 3-month over-the-counter interest rate swaps.
High-grade funds returned to inflows, while high-yield funds recorded their third consecutive week of outflows and government bond funds also saw outflows. Additionally, money market funds experienced a second consecutive week of withdrawals, whereas global emerging market debt funds extended their inflow streak to eight weeks.
